Friday, November 30, 2012

Piedmont Natural Gas Company, Inc. (PNY), an energy services company, engages in the distribution of natural gas to residential, commercial, industrial, and power generation customers in portions of North Carolina, South Carolina, and Tennessee. This dividend champion has boosted distributions for 34 years in a row.

The company’s last dividend increase was in March 2012 when the Board of Directors approved a 3.40% increase to 30 cents/share. The company’s peer group includes Dominion Resources (D), AGL Resources (GAS) and Atmos Energy (ATO).

Over the past decade this dividend growth stock has delivered an annualized total return of 10.40% to its shareholders.

The company has managed to deliver a 5.80% average increase in annual EPS since 2002. Analysts expect Piedmont Natural Gas to earn $1.78 per share in 2012 and $1.89 per share in 2013. In comparison, the company earned $1.57/share in 2011.

The return on equity has remained above 10% over the past decade. Rather than focus on absolute values for this indicator, I generally want to see at least a stable return on equity over time.

The annual dividend payment has increased by 4.20% per year over the past decade, which is lower than the growth in EPS.

A 4% growth in distributions translates into the dividend payment doubling almost every eighteen years. Piedmont’s current dividend is double the amount that was paid fifteen years ago.

The dividend payout ratio has been decreasing over the past decade, falling from almost 83% in 2002 to 57% in 2010, before increasing in 2011. A lower payout is always a plus, since it leaves room for consistent dividend growth minimizing the impact of short-term fluctuations in earnings.

Currently Piedmont Natural Gas is trading at 20 times earnings, yields 3.80% and has a sustainable distribution. I would consider adding to my position in the stock subject to availability of funds.